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FINANCIAL MARKET COURSES

Corporate Finance – Capital Budgeting

One of the most important decisions a company can make is where to invest its scarce capital resources in order to maximize shareholder value. These capital budgeting decisions need to be supported by rigorous analyses that have a firm economic underpinning.

 

The best way to quantify the costs and benefits of a capital budgeting opportunity is to use either a free cash flow or economic profit approach. The advantage of using these measures is that they both consider the economic flows/cash flows (operating flows and investment flows) associated with capital budgeting, and also take into account the return on investment that is expected by the capital contributors of a company.

 

This course will provide you with the quantitative tools needed to properly evaluate capital budgeting opportunities for the purpose of maximizing the value of a firm.

  • OBJECTIVES

    On completion of this course, you will be able to:

    Use a free cash flow (FCF) analysis to quantify a capital budgeting opportunity

    Use an economic profit approach to quantify a capital budgeting opportunity, and outline the similarities and differences between this approach and the FCF approach

    Calculate the terminal value of a project using two simplified quantitative approaches and a more sophisticated approach

    Describe the various qualitative issues to be addressed when conducting a capital budgeting analysis, and adopt an approach for dealing with 'strategic' investments

  • COURSE OUTLINE

    Topic 1: Free Cash Flow Approach to Capital Budgeting

    Using FCF to Quantify a Capital Budgeting Opportunity

    o Using FCF for Capital Budgeting – Positive NPV

    o Using FCF for Capital Budgeting – Zero NPV

    o Using FCF for Capital Budgeting – Negative NPV

    Topic 2: Economic Profit Approach to Capital Budgeting

    Using Economic Profit to Quantify a Capital Budgeting Opportunity

    o Using Economic Profit for Capital Budgeting – Positive NPV

    o Using Economic Profit for Capital Budgeting – Zero NPV

    o Using Economic Profit for Capital Budgeting – Negative NPV

    Economic Profit Vs FCF – Conclusion

    Topic 3: Qualitative Issues & Strategic Investments

    Qualitative Issues Surrounding Capital Budgeting Decisions

    Strategic Investments

    Strategic Investments – Example

    Topic 4: Terminal Value

    Terminal Value – Calculation

    o Terminal Value – Perpetuity Method

    o Terminal Value – Constant Growth Method

    Terminal Value – Some Observations

    Terminal Value – A more Sophisticated Approach

  • PREREQUISITE KNOWLEDGE

  • ESTIMATED COMPLETED TIME

    75 Minutes

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